Atlantic Richfield Co. of Los Angeles butted heads with giant British Petroleum PLC on Friday after launching a rival bid for nearly 50% of Britoil PLC--another major British energy company.
Moving with the approval of Britoil, Arco said it had already purchased 7% of the company's common stock at roughly $6.30 a share and intended to acquire a 29.9% stake--worth about $965 million--in the firm. The stake falls below the 30% mark at which Arco would have to make a full takeover offer under British law.
Britoil also said it had agreed to buy most of Arco's international oil and gas operations with newly issued stock. The two-step transaction will leave Arco with 49.9% of Britoil--just below the 50% level at which the British government could reject what it considers an undesirable takeover.
British Petroleum, which three days earlier said it had purchased a 14.9% stake in Britoil, quickly increased its offer from $5.27 a share to match Arco's. Arco and Glasgow, Scotland-based Britoil did not comment on the higher bid.
Britoil has opposed the overtures made by British Petroleum, which is also seeking up to a 29.9% stake in the company. A day after British Petroleum's offer, Britoil met with Arco executives to discuss the deal.
Although British Petroleum--the third-largest energy company in the world--is far larger than Arco, analysts believe that Arco has the financial resources to put up a good fight. "Arco had $2.6 billion in cash and securities," said Robert Weiss, an energy analyst for Standard & Poor's Corp. "They won't have trouble in raising the funds--they already got them."
Britoil's stock jumped $1.04 a share to finish at $6.34 on the London Stock Exchange. Arco shares fell 37.5 cents to close at $67.375 on the New York Stock Exchange. BP's stock rose 5.4 cents to $4.46. Arco's role as a corporate "white knight" surprised oil industry analysts, who, nevertheless, applauded the deal.
"It will protect Britoil from a takeover by British Petroleum," said Craig Schwerdt, an oil industry analyst with Morgan, Olmstead, Kennedy & Gardner. "From Arco's standpoint," he said, Britoil "will be the foreign exploration arm of Arco."
Arco has intended to boost its international oil and gas operations, which accounted for only 3% of its $14.9 billion in 1986 revenue. "Basically it enhances their international exposure without the risk," Weiss said. Britoil lays claim to valuable oil and gas reserves in the North Sea off Great Britain, and Arco would share in that wealth through its stake in the company.
Analysts say Britoil, which was sold to the public by the British government in two steps in 1982 and 1985, has attracted attention because its stock price does not reflect the true value of its holdings. The same holds true for Tricentrol, another British petroleum firm, which was the subject of a $240-million takeover bid made Friday by France's state-owned oil company.
In reaction to Arco's announcement, Moody's Investors Service Inc., which rates the riskiness of corporate debt, said it might lower the company debt rating. However, Standard & Poor's, another rating service, said it would make no changes.